Patent Signaling of Startups Can Be Less Effective under Coarse Information
- Patent Signaling of Startups Can Be Less Effective under Coarse Information
- HAHN, GUANGSUG and JOON YEOP KWON
- Date Issued
- Korean Finance Association
- We consider a patent signaling model for startup financing where an entrepreneur signals
his type by acquiring patents and investors have coarse information about the entrepreneur’s
true success probability. By invoking an extension of Cho and Kreps’ (1987) Intuitive Criterion
adapted to our model, we obtain the least-cost perfect Bayesian equilibrium, in which
a high-type entrepreneur may get a lower equity share despite of acquiring a higher level of
patent than in the benchmark where investors do not face coarse information. This implies
that coarse information faced by investors may lead to less effective patent-signaling than
in the benchmark.
- Article Type
- Conference of Korean Finance Association, 2018-11-02
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